Whether it’s brand new or has a few thousand miles under its belt, buying a car is major life decision that can have equally major financial consequences. As such, it’s important to do as much research into your personal finances ahead of time in order to make the best possible choice.
Before you even step foot on the lot of a car dealership, it’s critical that you have a solid understand of your finances. Think of it this way: would jump into the deep end if you could swim? Probably not. Jumping head first into a the process of buying a car without first knowing where you stand financially is kind of like that. In other words, it’s a bad idea that can land you in over your head financially!
Most people don’t pay for the entire cost of a car in full, and instead take advantage of financing options such as auto loans. If plan on getting an auto loan, here are a few financial health tips to keep in mind.
About that credit score…
Credit scores are something people either love or hate, but either way they play a huge role in your ability to get a car loan. There are several things that can impact your credit score, such as debt to income ratio, loan defaults, missed payments, bankruptcy, repossession and more. Credit scores can change, so be sure to take advantage of the several free credit monitoring tools available. If you have no credit or a checkered financial past, don’t fret. You may still be able to secure an auto loan with a cosigner who has a healthy credit score.
When determining what your budget is, never just look at the sticker price of a car. You may have received special auto finance leads or leads for car loans in the mail, but without a healthy credit score a hefty nest egg, you may not be able to afford the total operating cost of a car. Keep in mind that you buying a new or used car also involves tax, title, registration, fuel costs, insurance, and maintenance. All of this can add up quickly, so be sure the total cost of a new or used car won’t be too much of a financial strain.
Banks vs. credit unions vs. auto dealers
Once you have a good understand of your credit score and budget, you can begin to move forward in exploring your financing options. Before you head over to the car dealership, be sure to make a stop at your local bank or credit union to see what rates they’re able to offer you. In many cases, you can get a lower interest rate and more flexible payment options with a bank or credit union as opposed to the car dealer.